Northern Rock investors press ahead with court case against Government

Northern Rock's biggest former investor will argue in court next week that the bank's shareholders were "punished" by the Government for being the first lender hit by market turmoil.

SRM Global is leading an action in the High Court in London seeking to overturn the Government's terms for compensating shareholders for February's nationalisation of the bank.

With RAB Capital and the UK Shareholders Association, SRM will argue the Treasury rigged the terms for an independent valuation of the bank so there would be little or no compensation.

The Government's terms for the bank's valuer, BDO Stoy Hayward, assume the bank was in administration and no longer a going concern when it was nationalised. The shareholders say neither of these conditions was true and the valuer should be free to decide the terms. SRM will not argue against nationalisation but will claim shareholders have been treated unfairly, especially in light of subsequent events.

Legal & General, the biggest investor in the FTSE 100, is taking part in the action as an interested party. The shareholders's case has the support of Aviva Investors, the investment arm of Britain's biggest insurer, which wrote a letter saying that certainty is required when investing in UK companies.

Since Northern Rock was nationalised, authorities have provided liquidity and capital for the banking sector and brokered a Lloyds TSB takeover of HBOS. The valuation of Bradford & Bingley, part-nationalised in September, does not have the same restrictions as the Northern Rock valuation. Shareholders in other troubled banks have been diluted by the Government taking stakes, but not wiped out.

An SRM spokesman said: "If the Government had extended the same terms to Northern Rock that are being extended to other banks now, none of this would have happened. Northern Rock and its shareholders are being punished for being first. Shareholders should not have to suffer from policy mistakes that the Government itself acknowledges, by its later actions, were a failure."

The hearing starts on Monday. SRM will argue the Government terms amounted to a expropriation of property, in contravention of human rights law.